The Consumer Financial Protection Bureau (CFPB) today took action against the National Collegiate Student Loan Trusts and Pennsylvania Higher Education Assistance Agency (PHEAA) for multi-year servicing failures. The National Collegiate Student Loan Trusts purchase and securitize student loans, and PHEAA services the loans. The CFPB alleges that the defendants failed to respond to borrowers seeking relief from student loan payments, including during the COVID-19 national emergency. The CFPB today filed proposed stipulated final judgments, which, if entered by the court, would require the National Collegiate Student Loan Trusts and PHEAA to pay $400,000 and $1.75 million in penalties, respectively, to the CFPB’s victims relief fund. They would also pay nearly $3 million in redress to harmed borrowers.

“The CFPB has taken action against a web of investment trusts that failed student loan borrowers, including at the height of the pandemic,” said CFPB Director Rohit Chopra. “Our law enforcement action makes clear that investors cannot sidestep accountability by playing games of corporate musical chairs.”

During the leadup to the financial crisis, there was a boom in subprime-style student lending. Student lenders worked with investment bankers to turn student loans into securities. The National Collegiate Student Loan Trusts were an infamous example of this type of securitization. The National Collegiate Student Loan Trusts are a group of fifteen securitization trusts organized under Delaware law. The National Collegiate Student Loan Trusts acquire, pool, and securitize student loans, which they then service. As of February 2024, the National Collegiate Student Loan Trusts collectively held approximately 163,000 private student loans with approximately $907 million in outstanding balances.

Pennsylvania Higher Education Assistance Agency, which is commonly known as American Education Services or AES, is a student loan servicer with its principal office in Harrisburg, Pennsylvania. It is a public corporation organized under the laws of the Commonwealth of Pennsylvania. As of December 2023, PHEAA serviced a portfolio of student loans worth roughly $17.8 billion. It has been the primary servicer for active loans held by the National Collegiate Student Loan Trusts since at least 2006.

This is the CFPB’s second public enforcement action against the National Collegiate Student Loan Trusts. The CFPB earlier filed a lawsuit against this web of investment vehicles alleging, among other things, that the National Collegiate Student Loan Trusts brought improper debt collection lawsuits for private student loan debt that they could not prove was owed or that was too old to sue over. The National Collegiate Student Loan Trusts claimed that, as trusts, they were not covered under the Consumer Financial Protection Act. In March 2024, the United States Court of Appeals for the Third Circuit ruled the National Collegiate Student Loan Trusts are covered persons under the Consumer Financial Protection Act. That case remains pending in federal court.

In today’s case, the CFPB alleges that the defendants violated the Consumer Financial Protection Act. The CFPB’s complaint alleges that from 2015 until 2021, thousands of borrower requests—often seeking forms of payment relief—went unanswered. These included requests for co-signer release, extension of forbearance or deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits, or other forms of payment or interest rate reduction.

The defendants failed to properly respond to borrower requests for years, including during the COVID-19 pandemic. Thousands of borrowers sent requests during the pandemic seeking forbearance on loans held by the National Collegiate Student Loan Trusts. However, many of those requests were mishandled. Specifically, the defendants harmed consumers by:

• Failing to ensure responses to borrower requests: The National Collegiate Student Loan Trusts’ internal processes for handling borrower requests broke down in 2015, and they failed to take the steps necessary to fix them. Thousands of borrowers waited months and even years for responses to their requests, and many received no answer at all.
• Failing to provide accurate information to borrowers: PHEAA misrepresented to consumers that certain requests would be answered when, in fact, the company knew that they would not. The company also failed to inform borrowers that forbearance requests submitted to the National Collegiate Student Loan Trusts would not be appropriately processed, and that other payment relief options were available.
• Incorrectly denying forbearance requests: PHEAA denied, or failed to timely respond to, eligible borrower requests for COVID-19-related natural disaster forbearance.

Enforcement Action

Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts or practices. If entered by the court, the order would require the defendants to:

• Pay nearly $3 million in redress to borrowers: The redress includes $200 payments to borrowers who did not receive timely responses to exception requests. Further redress, such as reimbursement or return of borrower or co-signer payments and reimbursement or waiver of fees, will be calculated after a review of affected requests.
• Correct outstanding requests: The defendants will be required to grant certain pending borrower requests for cosigner release and Servicemember Civil Relief Act benefits, correct credit reporting errors, and cease debt collection activities for certain borrowers who should have been eligible for Servicemember Civil Relief Act benefits but whose loans went into default. The defendants will also be required to waive late fees for borrowers who should have had requests granted for Servicemember Civil Relief Act benefits, COVID-related forbearance, or cosigner release.
• Pay a $2.15 million fine: The National Collegiate Student Loan Trusts will pay a $400,000 penalty, and PHEAA will pay a $1.75 million penalty. The penalties will be deposited into the CFPB’s victims relief fund.

Read today’s complaint

Read today’s proposed stipulated judgments.

Read CFPB Director Chopra’s remarks on student loan securitization and the previous CFPB action against the National Collegiate Student Loan Trusts.

Read consumer complaints about student loan servicing.